Outsiders Beware of Louisiana Law on Non-Compete Agreements
Companies and individuals outside of Louisiana seeking to do business here are often surprised by Louisiana’s non-compete law. Most other states use a reasonableness test to determine the validity of non-compete agreements. If a particular non-compete agreement is reasonable in scope and duration, depending upon the industry, most states uphold such an agreement—not so in Louisiana. To the contrary, Louisiana contracts that restrain someone’s right to work are presumed to be invalid. Moreover, Louisiana law prevents efforts to avoid the applicability of Louisiana’s strict law in contractually providing for the applicability of another state’s law in a non-compete agreement involving an employer/employee relationship. In short, Louisiana law on non-compete agreements cannot be avoided for outsiders seeking to do business in Louisiana.
The validity of non-compete agreements in Louisiana is strictly controlled by a single statutory provision (La. R.S. 23:921) and its judicial interpretation. La. R.S. 23:921(A)(1) begins with the general prohibition against any agreement whereby anyone is restrained from exercising a lawful profession, trade, or business, unless one of the narrow exceptions to the general prohibition contained therein is satisfied. It provides:
Every contract or agreement, or provision thereof, by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, except as provided in this Section, shall be null and void.
Louisiana has long had a strong public policy against non-compete agreements. Because these agreements are in derogation of the common right, the right to work in your chosen field, Louisiana jurisprudence has narrowly construed the exceptions to the general prohibition listed in La. R.S. 23:921. These exceptions, for the most part, are based upon relationships. The list of exceptions include the employee/employer relationship, the sale of the goodwill of a business, the dissolution of a partnership, the franchisor/franchisee relationship, the employer/computer employee relationship, the corporation/shareholder relationship, the partnership/partner relationship without consideration of any possible dissolution, and the limited liability company/member relationship.
Once it is demonstrated that a particular non-compete agreement falls within one of the listed exceptions, most Louisiana courts require a valid non-compete agreement to contain an area of prohibition described by parishes, municipalities, or parts thereof, together with a term of no longer than two years from date of termination of the relationship. These requirements are derived directly from statutory language.
While not contained within the statute, some Louisiana courts also require a valid non-compete agreement to define narrowly and accurately the business in which the individual is prohibited from competing. Other Louisiana courts deny the need for this additional non-statutory-based requirement. If the business is defined within the agreement, however, the definition must be narrow and accurate.
In further protecting the right of employees to work in their chosen field of employment, La. R.S. 23:921 prohibits a contract of employment from designating by contractual provision the applicability of another state’s law unless the employee re-confirms such choice of law after the occurrence of the incident which is the subject of the dispute. Thus, once an employee is terminated and begins competing with their ex-employer, the applicability of the provision in the non-compete agreement selecting the applicability of another state’s law is only valid if the employee agrees to it again, once their ex-employer complains about the alleged violation of the non-compete agreement.
La. R.S. 23:921(2) provides:
(2) The provisions of every employment contract or agreement, or provisions thereof, by which any foreign or domestic employer or any other person or entity includes a choice of forum clause or choice of law clause in an employee’s contract of employment or collective bargaining agreement, or attempts to enforce either a choice of forum clause or choice of law clause in any civil or administrative action involving an employee, shall be null and void except where the choice of forum clause or choice of law clause is expressly, knowingly, and voluntarily agreed to and ratified by the employee after the occurrence of the incident which is the subject of the civil or administrative action.
As demonstrated herein, drafting an enforceable non-compete agreement in Louisiana requires much more than reasonableness. All requirements of La. R.S. 23:921 must be met for a valid non-compete agreement in Louisiana.
Finally, one industry group exists whereby the Louisiana Legislature has determined that no non-compete agreement, no matter how well-prepared and how compliant with La. R.S. 23:921, can be utilized to prohibit them from working in Louisiana. No, it is not doctors or lawyers, nor is it hair stylists or stockbrokers. All these professions can agree and indeed be bound by a non-compete agreement if prepared in compliance with the requirements of La. R.S. 23:921. The only profession that cannot be limited in working in their chosen field by an otherwise valid non-compete agreement in Louisiana is automobile salesmen.